Businesses may move overseas, says CBI survey

Published Tuesday 24 November 2009 3:27 pm

In ten years time key aspects of the UK economy may ultimately fall under the control of overseas governments, and as market opportunities shift, current prominent businesses in both services and manufacturing may move substantially overseas, according to a new report, “The shape of business: the next ten years”, published by The Confederation of British Industry.

The survey focuses strongly on supply chain and includes the results of a survey of business leaders by Ipsos MORI, sponsored by the CBI and Deloitte which found that financing the supply chain is a critical issue for many.

Over half (55 per cent) said that they would now only tolerate a lower level of risk from gearing and, within that group, 70 per cent said an economic recovery would not reverse their position.

And when asked about supply chain fragility during the recovery, only 24 per cent said that they were not concerned. Businesses were most worried about a unique, specialist supplier going bust; that the supplier’s own supply chain would collapse; and that the supplier would be unable to obtain working capital.

Because of these ongoing threats, 68 per cent of firms said they would be strengthening the level of partnerships with suppliers in the coming years. One in three (30 per cent) said they would be increasing their number of suppliers. And around one in five said they would be offering finance to key suppliers, reducing dependency on ‘just in time’ processes, and shrinking geographic distances to suppliers.

CBI director general Richard Lambert (pictured) said: “Firms looking to reduce risk and acknowledge their interdependence are seeking more collaborative ways of working through partnerships and joint ventures. Perhaps we will see a flourishing of supply chain finance – in which firms with the largest, most solid balance sheets help finance their smaller suppliers or customers.”

The report says there will be increased opportunities for UK high-value manufacturers as certain supply chains, or supply chain elements, gravitate back to the UK.

However, the CBI warns that the ability of UK manufacturers to capitalise on these new dynamics will depend on their capacity and capability. “These do not currently exist in many parts of the manufacturing supply chain due to historic under-investment in capital and innovation and an inadequate supply of STEM skills.”

Much of the change envisaged by the CBI is a result of the restructuring of supply chains. Over the past decade, cost has been the major driver of supply chain decisions, it says, but the increased awareness of supply chain risk will see businesses take different approaches.

The most prevalent trend is one of ‘localism’ – the desire of businesses for their suppliers to be close to market, making supply chains regional rather than global. And it says there are four factors that will govern whether businesses relocate physical supply chains back to the UK:

* supply chains for low-value goods will remain overseas

* the UK will be most attractive where security of supply or carbon footprint are critical

* whether the UK has the capacity: “in many cases the hollowing out of supply chains over the last 20 years means the UK is likely to miss out to countries such as Germany and Italy where key elements are still in place”

* if the biggest market is in countries such as India or China, there is little reason for production to be in the UK

The report argues that a some high-value service jobs (and possibly even whole service industries) will be lost from the UK. The jobs and activity likely to move are those that might have been expected to stay in the UK just a couple of years ago – including design, research, architecture, forensic accounting, audit, legal, IT and editorial and so on.

Ultimately, says the CBI report: “The next phase of outsourcing/off-shoring, with companies rationalising activity to a focused core tapping into a wide periphery of staff and other organisations, could go either way. Managed well, it should make the UK even more flexible and responsive and attract further inward investment. The alternative scenario could see significant loss of core expertise from the UK.”